JP Morgan Chase & Co is in talks with Bear Stearns to quintuple its offer to buy Bear Stearns Cos to $10 per share in an effort to pacify angry Bear shareholders. JP Morgan raised its takeover offer for Bear Stearns Cos yesterday to about 5 times what it had originally quoted. A deal therefore was struck and JP Morgan is set to buy about 40% of the bank.

Under this revised deal, JP Morgan would purchase 95 million newly issued Bear Stearns shares. The New York Times reported that Bear’s board of management has also agreed to this new offer. John Augustine, chief investment strategist with Fifth Third Investment Advisors was noted as saying that JP Morgan has had this deal sewn up right now. The new offer puts Bear Stearns at a value of about $2.1 billion, much more than the $236 million which it was valued at under the initial deal. Representatives of Bear, JP Morgan and the Fed were not immediately available for comment.

The revised deal has financial backing from the Federal Reserve. This would raise concerns about the US government’s ability to rescue Wall Street bankers while millions of homeowners face the possibility of foreclosure.

Bear has recently been ranked as the fifth-largest U.S. investment bank but that ranking took a downturn as large subprime mortgage losses and falling confidence in the company prompted a run on the bank. The finalization of this new deal is vital to JP Morgan as this would serve as encouragement to banks and other customers that they can do business with Bear safely yet again. Bear’s liabilities were tightened by JP Morgan and it agreed to back all of Bear’s prime brokerage contracts and all of its short- and long-term loans.

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Via BBC